Weekly Kick Start | 9 September 2023

In this edition of Weekly Kick Start, we will be spotlighting the year’s most eagerly awaited tech IPO: ARM Holdings. The renowned British chip designer is seeking to capitalize on the AI buzz. Additionally, we will delve into the primary market drivers of last week and highlight what to watch for in the upcoming week.

What We Are Interested This Week: ARM’s IPO 

Who is ARM Holdings?

While the name ARM might not ring a bell for many, if you have used a modern mobile phone, chances are, you have experienced the prowess of an ARM processor.

ARM is a UK-based semiconductor company that designs ARM-based processors. Unlike other industry titans such as Intel or AMD, ARM does not mass-produce silicon chips. Instead, it designs the architectures and licenses these designs to other chip makers such as Apple, Samsung, and Qualcomm. 

More simply put, ARM is the “brain” of the semiconductor industry. ARM’s products are popular among chip manufacturers because they are innovative, efficient, and cost-effective.

ARM was acquired by Softbank, a Japanese investment holding company, in 2016 for approximately US$32 billion. Now Softbank intends to sell 9.4% of ARM with a market capitalisation ranging between US$ 50 billion and US$55 billion.

Why does ARM IPO attract so much attention?

These are some key reasons:  

  • The initial public offering (IPO) landscape has been notably subdued since 2022, making the ARM’s IPO especially awaited. Pegged as potentially 2023’s largest IPO, it also serves as a barometer for the current market sentiment.
  • ARM is one of the most important players in the semiconductor industry. According to ARM, their CPUs powered a staggering 99% of global smartphones by the end of 2022. Furthermore, the chips using their designs—totaling over 250 billion—have found their way into a vast array of devices, from the smallest sensors to the most formidable supercomputers.
  • Industry titans have already expressed their interest in ARM’s IPO. Prominent potential anchor investors for the ARM IPO feature the likes of Alphabet, Samsung, Apple, Microsoft, TSMC, Intel, and Nvidia. It is important to note that confirmations from many of these investors are still pending, and the final list might shift as the IPO date nears. Yet, the keen interest from both ARM’s customers and competitors underscores the significance of this event.

Should you care? 

For the fiscal year 2023, ARM reported revenue of US$2.7billion. Should ARM’s valuation hit between US$50 and US$55 billion, it would translate into 19 times its most recently shared annual revenue.  To provide some context, that valuation will put ARM in the same bucket as AI powerhouse Nvidia.

Determining whether this is indeed a good deal hinges largely on ARM’s potential trajectory in the AI landscape. Historically, ARM’s chip designs have been the bedrock for conventional semiconductors in smartphones and PCs. So far ARM’s exposure to artificial intelligence has been small. Understandably, ARM is now indicating a shift to tap into the “explosive growth” of artificial intelligence technologies.

How to buy into ARM?

Buying into ARM’s IPO will be straightforward, as long as you have a brokerage account with access to the market in which the company is going to be listed. You can typically buy shares once that market opens on the day of the IPO. For ARM, the listing will be on the Nasdaq. The expected date of IPO is around mid-September. You can use Syfe Trade to execute your orders, and benefit from two free trades each month.

Market Recap This Week 

Source : Bloomberg, Syfe Research, 9 September 2023 

This was a holiday-shortened workweek without major economic events. The market remained cautious ahead of the Federal Open Market Committee (FOMC) meeting later this month.

WTI oil prices soared to a ten-month high of US$87 after Saudi Arabia and Russia extended their voluntary supply cuts, totaling 1.3 million barrels per day, to the end of the year. However, weak data from China makes it challenging to determine if the rally will sustain. 

Week Ahead

This coming week, investors will pay attention to US August CPI (Wed, 13 September). Moderate increases in both headline and core CPI are widely expected, and these figures could influence Fed’s policy decisions.

The spotlight shifts to the ECB rate announcement (Thursday, 14 September). The consensus among both markets and economists leans towards a “hold” stance.

This week, we can also anticipate the IPO of the tech company ARM. SoftBank looks set to test the market’s appetite for new listings during a period of cautious sentiment.

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